Playing on Unfamiliar Turf

Jonathan D. Miller

I don’t normally talk about particular deals, but the Waldorf-Astoria Hotel story is so trend worthy. First off, an offshore institutional buyer paid what arguably had been an eye-popping, probably top-of-the-cycle price of nearly $2 billion for an iconic New York City property—think Rockefeller Center redux. This time it was a Chinese insurance company doing the buying, back in the late 1980s it was a Japanese conglomerate. Just before the 2008 crash, the Aussies were among those caught overbuying too. What’s noteworthy is that foreign players so often get caught making rich bets when markets get frothiest and are vulnerable to the consequences of not appreciating local warning signs. Late in the cycle they seek out global brand name trophies, taking comfort in familiar names, which somehow bring a certain recognition value back home. And now we see the strategic-thinking behind the high purchase price for the 85-year-old hotel, comprising a full block fronting Park Avenue. The buyer apparently plans a complete $1 billion gut job and intends to turn most of the 1,400 rooms into condominiums, with a leftover hotel component—approximately 300 to 500 rooms to be determined. Of course, this was tried once before by foreign buyers with mixed results at another Manhattan lodging landmark—The Plaza. We assume some vestige of Peacock Alley will be saved and so too the Grand Ball Room, scene of so many high society events. But from a trends standpoint, most locals also have been signaling that the high-priced luxury residential buying craze is over. The hideously banal “French Fry” at 57 ^th off Park Avenue is far from selling out and other recently constructed high-profile condo towers around Midtown and the Upper East Side readily report heady tens-of-million dollar sales numbers on individual apartments, but gloss over all the empty units still on the market. More ultra-luxury projects are rising just as brokers signal the pullback in demand, particularly from foreigners (yes them again) who had been parking money in stateside safe havens through condo purchases. What will be the allure of an ultra-expensive prewar condominium unit in the Waldorf? It will not be the exceptional view space of the French Fry. In fact, the Waldorf is hemmed in and shadowed by various neighboring towers. The near-to-Grand-Central location is a commercial-lodging hub not a child-friendly neighborhood for families. Maybe the makeover will be suitable for prestige pied-de-terres for CEOs and moguls requiring concierge and maid services. But what ownership is really left with is possibly the last foray in this cycle for trying to attract what’s left of mega wealthy foreigners, who haven’t yet put money into New York residences and may not care whether they live much in them or not. As noted that market of the ultra-affluent appears to be diminishing by the week. Asia is struggling, South America is weaker, and after Brexit, if there were any doubts, Europe is in turmoil. The arguably inflated price tags for Manhattan condos look that much bigger to offshore buyers as foreign currencies weaken against the dollar. It’s always dicey to play off familiar turf, especially at the end of the cycle when you don’t know enough to realize the game is almost over. What everybody should hope for now is a soft landing.